Request for Exemption from the 1% Foreign Exchange Transaction Tax on Purchases of Pesos by the U.S. Military Base

December 5, 1985 BIR RULING NO. 216-85 260-A 163-85 216-85 Gentlemen : This refers to your letter dated October 15, 1985 requesting exemption from the 1% foreign exchange transaction tax on the purchases of pesos by the U.S. military base. cd It is represented that under the terms of a 1983 agreement, the Central Bank agreed to provide pesos for use by the U.S. military bases at Clark and Subic at the rate of one-half centavo above the guiding rate, the same rate to be provided Citibank on the clearing of U.S. treasury checks; that orders for peso purchases were to be placed through Prudential Bank; and that since no spread was charged by the intermediaries in these transactions, you consider them as purchases from the Central Bank. In reply, please be informed that your request cannot be granted for lack of legal basis. Under Section 260-A of the Tax Code as amended by P.D. No. 1959 which took effect on October 15, 1984, an additional 1% gross receipts tax is imposed on all transactions involving the sale or purchase of foreign exchange for peso by all banks, non-bank financial intermediaries and other authorized foreign exchange dealers or agents who are directly liable to the payment of the said 1% foreign exchange transaction tax. (Sec. 1, Rev. Regs. No. 16-84; Rev. Memorandum Circular No. 30-84) Consequently, you cannot claim exemption from the 1% transaction tax on the purchases of pesos from the Prudential Bank by the U.S. military bases for the reason that the same is a tax directly payable by the Prudential Bank, in which case, the 1% tax passed on by the bank to the U.S. military bases purchasers shall form part of the cost of purchase/sale of foreign exchange. Moreover, if the said purchases of pesos are from the Central Bank, the latter, being also subject to the 1% tax is considered as the party liable for the payment of the same and, consequently, the tax passed on to the purchaser shall form part of the cost of purchase/sale of foreign exchange. (BIR Ruling No. 24-b-000-00-197-85 dated November 7, 1985) Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner